Live From DAS: The Return of Bitcoin-Backed Lending | John Glover

This episode delves into Ledn's strategy of applying traditional finance discipline to Bitcoin-backed lending, highlighting how pristine collateral and rigorous risk management fueled resilience and growth following the 2022 crypto credit crisis.

Introduction to Ledn and John Glover

John Glover, CIO of Ledn, introduces the company's core focus: providing dollar loans collateralized primarily by Bitcoin (BTC) and Ethereum (ETH) to a global retail client base. He emphasizes Ledn's dual role, acting not only as a lender but also as a significant borrower of dollars (backed by Bitcoin) to fund its loan book, positioning the firm within the broader crypto financial ecosystem.

The Case for Bitcoin as Pristine Collateral

Drawing parallels with his traditional finance (TradFi) background, John Glover explains why Bitcoin serves as superior collateral compared to assets like stocks or T-bills. Unlike traditional assets constrained by market hours (e.g., 9:30 AM - 4:30 PM weekdays), Bitcoin trades 24/7/365 with deep and growing liquidity. This continuous market access mitigates "gap risk"—the danger of collateral value dropping significantly while markets are closed, potentially exposing lenders to losses before liquidation is possible, as illustrated by hypothetical weekend events impacting a stock like Tesla.

Navigating the Crypto Lending Crisis and Rebuilding Trust

John recounts the turbulent period leading up to and following the collapse of major crypto lenders like Celsius, BlockFi, Genesis, and Voyager. He highlights Ledn's deliberate, risk-averse strategy during the preceding boom, contrasting it with competitors who aggressively pursued growth by lending to opaque entities like Three Arrows Capital without proper due diligence or generating yield on tokens lacking institutional markets. John shares an anecdote: “one of the board members said, 'Why is Ledn not as big as BlockFi?' And I said, 'I have no idea how they're as big as they are... They can only be doing that through taking risk.'” Ledn's adherence to traditional credit underwriting and risk management allowed it to survive, but the industry-wide failures severely damaged trust, causing Ledn's retail loan book to shrink dramatically (from ~$300M to ~$45M) as clients nervously repaid loans. The subsequent market recovery, starting around March 2023, saw Ledn's loan book rebound and grow beyond its previous peak, validating its conservative approach.

Bitcoin-Backed Loans vs. Traditional Loans: Accessibility and Efficiency

John clarifies that Ledn isn't reinventing lending but rather adapting traditional secured loan structures for the digital asset space. The key difference lies not in the loan mechanics but in the collateral's nature: Bitcoin allows individuals who are "digital asset rich" but may lack traditional income or assets to access credit they couldn't obtain from banks. This is particularly relevant for clients in regions like Latin America, where access to traditional financial services is often limited. Furthermore, the process leverages Bitcoin's global, permissionless nature for faster, 24/7, transparent loan origination compared to traditional systems.

Ledn's Diverse Customer Base and Loan Usage

Ledn serves a broad spectrum of clients across approximately 122 countries, ranging from retail users (minimum loan $500, average under $50,000) to high-net-worth individuals and corporate treasuries. Common use cases for these loans are diverse, including paying for education, housing, vehicles, vacations, starting businesses, purchasing property, or diversifying into traditional asset classes by borrowing dollars against crypto holdings.

Loan Characteristics and Client Behavior

Ledn's loans have a standard one-year term but can be repaid anytime without penalty, aligning with consumer protection laws. The average loan duration is around 160 days, indicating relatively short-term needs or active management by borrowers. Many clients are repeat customers, averaging about 1.3 loans per year—a figure that has been trending upward. John attributes this growth partly to rising collateral values, enabling clients to take out additional loans against their existing, appreciated Bitcoin holdings.

Funding Ledn's Operations: Hybrid Approach

Ledn employs a multi-pronged strategy to source the dollars it lends out. A smaller portion (around 15%) comes from "Growth Accounts," where clients deposit stablecoins like USDC (USD Coin, a dollar-pegged stablecoin) or USDT (Tether, another dollar-pegged stablecoin) to earn yield generated from Ledn's overcollateralized retail lending. Regulatory restrictions currently prevent offering these accounts in the US and Canada. The majority of funding comes from bilateral loan agreements with larger wholesale lenders and institutions, where Ledn borrows dollars by providing Bitcoin as overcollateralization. John specifically mentions Signum Bank (a regulated Swiss digital asset bank) which arranged the first syndicated Bitcoin-backed loan for Ledn.

Regulatory Landscape and Building Confidence

John expresses hope that regulatory changes, potentially under a new administration, might allow the reintroduction of yield-bearing savings products like Growth Accounts in North America, expanding access to yield for dollar holders. He notes that Ledn sought external validation from AIO Ratings, a crypto-specific ratings agency, which assigned Ledn an A- (investment grade) rating, aiming to bolster client confidence in the platform's stability and risk management.

Rigorous Risk Management Framework

Ledn employs a strict Loan-to-Value (LTV) based risk management system for its retail loans. LTV represents the ratio of the loan amount to the value of the collateral.

• Loans originate at a maximum 50% LTV ($100k loan requires $200k BTC collateral).
• Automated warnings are sent to clients if the LTV reaches 70%.
• Collateral LTV is monitored continuously (every 60 seconds).
• If LTV hits 80%, a portion of the collateral is automatically liquidated to repay the loan principal and accrued interest, with any remaining Bitcoin returned to the client.

John proudly states this methodology has resulted in zero losses on $1.2 billion worth of originated loans: “we've never lost a penny or Satoshi on any of the loans because of that methodology.”

Beyond Bitcoin: Collateral Diversification and Strategy

While acknowledging the presence of "Bitcoin maxis" within Ledn, John clarifies the company believes broadly in digital assets and financial inclusion. Ledn currently accepts Ethereum (ETH) as collateral under the same risk parameters (50% LTV start, 80% liquidation) as Bitcoin, finding its volatility manageable within their existing tech framework. They are cautious about adding other assets, primarily due to the lack of deep institutional lending markets for most altcoins, which is crucial for their funding model and risk management. He also notes many clients prefer to keep their Bitcoin intact as collateral rather than exploring yield opportunities elsewhere (like wrapping it for DeFi).

CeFi vs. DeFi Lending: Client Preferences and Market Segmentation

John acknowledges the existence of Decentralized Finance (DeFi) lending protocols as competition but suggests they serve a different client segment. Ledn's Centralized Finance (CeFi) model appeals to users prioritizing AML (Anti-Money Laundering) and KYC (Know Your Customer) compliance, regulatory certainty, and tax clarity. A key differentiator is Ledn's fixed interest rates for the loan term, providing predictability that contrasts sharply with the often volatile variable rates found in DeFi. “People want the certainty of knowing exactly what they're going to have to pay... I think that until that [DeFi fixed rate] market develops more, there'll be more demand probably for the CeFi space where it's fixed.”

Ledn's Future Roadmap: Refinement and TradFi Integration

Ledn's immediate plans focus on enhancing its existing services rather than radical new ventures, embodying a philosophy John describes as “the best restaurants have the smallest menus.” Key initiatives include securing more favorable funding arrangements by tapping deeper into TradFi capital markets to lower borrowing costs, which remain high compared to traditional investment-grade borrowers. Product enhancements focus on user convenience, such as an "auto top-up" feature allowing clients to automatically move spare Bitcoin into their collateral pool if their LTV approaches warning levels, simplifying loan management.

Conclusion

This discussion highlights how blending TradFi risk discipline with Bitcoin's unique collateral properties fosters resilience. Crypto AI investors and researchers should monitor the integration of traditional capital and rigorous risk protocols, key indicators of market maturity and safer CeFi lending opportunities.